Developing a cash flow statement is essential to understanding your business’ current liquidity. It is a snapshot of your organization’s current “cash on hand.” Additional details regarding Cash Flow Statements and everything that is involved in creating one and reading one can be found here.
Perhaps the most important aspect of a cash flow statement is the layout. Since it is a widely used statement among businesses, it’s best to make sure it looks the same no matter whose business it is.
Free Cash Flow Statement Template
And for those readers who need a quick reminder of what is involved in a cash flow statement, here’s a quick overview.
What is a cash flow statement?
A cash flow statement is a financial document typically used to understand the solvency of your business. In order to complete the statement of cash flow template, here are the most essential details to know.
Direct vs. Indirect Method
First, you’ll need to pick one of these two methods. The biggest differentiator between the two methods has to do with how we think about operating costs. Both methods handle investing and finance activities in the same way.
Direct Method: This method deducts cash out from cash in. By focusing on inflows and outflows of cash from operating activities.
Put the Direct Method to work: Start by listing cash paid and received. Make sure to include line items for cash paid to employees, vendors, and on interest. Then include cash from customers.
Indirect Method: The Indirect Method is slightly more complex. It uses your company’s net income and then calculates in depreciation.
Put the Indirect Method to work: Start by determining your operations net income and then converting the accrual net income into operating activity cash flows.
Here are some of the line items on a typical indirect method cash flow statement, increase in accrued expenses payable, depreciation expense, decrease in accounts receivable and deducting increases in inventory.
NOTE: A majority of large U.S. corporations prefer the indirect method when preparing their statement of cash flows.
Example of cash flow statement
|Cash Flows for the period ending December 31, 2018|
|Cash received from customers||700,000|
|Cash paid to vendors||-100,000|
|Labor costs paid||-150,000|
|Other operating expenses||-50,000|
|Net Cash From Operating Activities||400,000|
|Purchase of machinery||-25,000|
|Sale of equipment||20,000|
|Net Cash From Investing Activities||-5,000|
|Long-term debt repayments||-60,000|
|Net Cash From Financing Activities||-70,000|
|Net Change in Cash||325,000|
|Beginning Balance in Cash||30,000|
|Ending Balance in Cash||355,000|